ETFs

The Sunday Tribune had a rather odd article today about commodity ETFs. Eddie Lennon seems to get his facts wrong, or at least misses the point with regard to the advantages ETFs provide:

ETFs are bought and sold on the stock market just like shares. They offer an easy, inexpensive entry to the markets and can be bought through a stockbroker for a standard brokerage fee or from an investment company, preferably for a flat fee. The minimum investment is usually €5,000, but can be as much as €20,000.

ETFs are listed on the stock market like ordinary shares. You can buy and sell them like you do with ordinary shares. They are also priced like ordinary shares. So where does this minimum investment of €5,000 come from? And a maximum? It makes no sense. (Though I guess he may be directing the article at the pensions market specifically) He goes on:

They can also be bought from the likes of Eagle Star, Irish Life, Canada Life and Rabodirect, which have their own commodity-linked investment funds. These companies buy commodities indices on the world’s stock markets.

Eagle Star’s Global Commodities Fund was the top Irish performer in this area over the past year, until last Wednesday. It rose in value by an impressive 48.16%. Next was Irish Life’s Commodities Index Fund, which grew by 20.19% over the same period, followed by Rabodirect’s BlackRock World Gold Fund (up 18.61%), Rabodirect’s BlackRock World Mining Fund (up 12.48%), Canada Life’s Quadrivium Fund (down 12.37%) and Rabodirect’s JPM Global Natural Resources Fund (down 16.79%).

Ah. Now I see. Let’s take the Eagle Star Global Commodities Fund as an example. According to the information in the prior piece, there is a minimum investment level of €5k. But that’s only if you go through one of this firms who are simply reselling ETFs. The one mentioned actually just tracks this. Which traded at $67.80 a share on Friday.

Why would I go through Eagle Star when I can just buy the ETF myself on the market? I could buy one share for $67.80, that’s the real minimum investment level. And the maximum? Well I guess I could theoretically buy all the ETF shares, but that would cost quite a bit of money. Or better yet I could dollar cost average my investment in ETFs, and buy at regular intervals. See here.

Strangely, expense ratios are nowhere mentioned. It is one of the biggest factors for anyone buying ETFs. Vanguard offer some of the lowest.

The Fool has a good roundup on the difference between mutual funds and ETFs.

I suspect all of these firms are simply reselling ETF products and taking a cut for themselves. If you want commodities exposure you would be better advised to avoid all of these firms. Technically the least you can invest is one share, not €5,000.

Just open a cheap online broker account with Firstrade or Zecco and do the buying yourself for next to nothing.

And no matter what you do, either doing it yourself or through one of these firms, you will be dollar exposed since the ETFs are listed on US markets.